Tequila's 'Gold Rush' Is Fueled by Luxury Brands

Liquor Giants and Startups Pour Marketing Behind High-End Offerings

It used to be that luxury and tequila did not mix. Tequila shots and bad hangovers were a more likely pairing. But today, tequila is surging thanks to a burgeoning interest in high-end brands that have overturned the spirit's image as a cheap booze only meant for shots and margaritas.

"The category and the consumption of tequila itself is skyrocketing. People are finally figuring out that tequila is worth sipping and it's worth putting in a really good cocktail," said Emily Pennington, managing editor of Wine & Spirits Daily.

As a result, pioneering and dominant luxury tequila brand Patron is facing a flood of competition from liquor giants and tequila start-ups that are pouring money into marketing and expanded production. "Right now it's a gold rush," said Ken Austin, founder of six-year-old Avion tequila. "Everybody wants to be in it. And then, like every other industry, there will be a shakeout and there will only be a few that actually win."

For now, there appears to be enough room at the bar for many brands to thrive.

Tequila sales volumes at bars and restaurants grew at 7.3% in the 52 weeks ending March 26, outpacing vodka, whiskey and rum, according to Danny Brager, senior VP of Nielsen's beverage/alcohol practice. Much of tequila's growth is coming from the high end as more drinkers favor 100% agave offerings, according to Mr. Brager. These versions are perceived as better quality than so-called mixto Tequilas that mix agave and sugar.

The luxury tequila segment -- which includes brands priced at $40 a bottle or more -- grew 8% last year to 2.9 million nine-liter cases, according to liquor trade publication Shanken News Daily.

Patron controls more than 70% share of the luxury segment, and the brand grew 4% last year -- not a small feat for a large brand. But second-place Don Julio, which is owned by Diageo, grew 13%, according to Shanken. In third place is Brown-Forman-owned Herradura, which increased 10.2%. Fourth-place Avion jumped 26.5%.

Also surging is Casamigos, which was co-founded by George Clooney in 2013. The brand more than doubled its volume last year and now ranks fifth in the luxury segment, according to Shanken. Other brands on the rise include Casa Noble, which launched a multimillion-dollar campaign earlier this year called the "The Noble Pursuit." The new investment came in the wake of the 2014 acquisition by Constellation Brands, whose brands include Corona Extra beer. Recent TV ads have shown Corona and Casa Noble together.

Winning respect
Most high-end brands are pursuing marketing that emphasizes substance over style with each one trying to position itself as more authentic than the competition. Stories about how tequila is made are in. Flashy celebrity-filled campaigns are out.

Avion is one of the most aggressive players. The brand is launching its biggest campaign to date called "Tequila Elevado a un Arte," which translates to "tequila elevated to art." The agency is Opperman Weiss of New York. Ads are meant to celebrate inefficiency. That is a nod to the meticulous process that the brand says is involved in making Avion, from slow-roasting agave at low temperatures in brick ovens to its "proprietary ultra-slow filtration process." The larger brand platform is called "Yo/Elevado," which is a reference to the high elevation in which the brand's agave is grown at 7,000 feet above sea level in Jalisco, Mexico.

One ad, which was directed by Jake Scott, features a dream sequence in which a man "did tequila with the Gods" in the high elevations near the brand's agave farm. The campaign will include TV, digital and social media. Media buying and planning is by 360i.

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Avion launched in 2010 in New York City and Los Angeles and went national four years ago. Mr. Austin was previously president of Marquis Jet, which was sold to Berkshire Hathaway's NetJets in 2010. (Avion is Spanish for airplane.) Mr. Austin's goal at launch was to make Avion No. 2 behind Patron, which was hardly being challenged. "It's not natural for there to be one player with no true competitors," he said in a recent interview. Early investors included AOL CEO Tim Armstrong.

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The brand enjoyed widespread attention right off the bat when it was featured in a plot storyline of HBO's "Entourage." The placement -- which Mr. Austin said was not paid -- came as the result of his friendship with show creator Doug Ellin, who was searching for a storyline for the character known as Turtle. But the TV spotlight was a blessing and a curse for the young brand.

"That awareness that it created was great," Mr. Austin said. But "people thought it was fake. People thought it couldn't be good tequila because it was on TV and it was sort of a character in a TV show, and they didn't understand the art form of what this tequila actually is." The brand sought to overturn that image with a campaign that simply stated "Yes, It's Real." It included flying airplanes carrying that saying over Miami's South Beach.

Avion's road to respect got a boost in 2012 when it was voted "Best Tasting Tequila" at the San Francisco World Spirits Competition. "It became the world's best tequila versus the Entourage tequila and that was a very critical moment for us," Mr. Austin recalled. To maintain that image, Avion carefully avoids flashy endorsements. "I've had more celebrities than I can count on my hands and toes that have come to us and said I want to be your spokesperson. And we won't do that because we had our moment in terms of awareness," Mr. Austin said, referring to the Entourage experience. "The brand and the product and the bottle has to be the star."

Liquor giant Pernod Ricard took a majority stake in Avion in 2014 and has made it a priority. Mr. Austin declined to reveal the dollar investment behind the new campaign, but said it represents Avion's biggest investment "by a lot."

The man behind Don Julio
Don Julio's version of authenticity includes plugging its late founder Don Julio Gonzalez, who first began planting agave plants in Mexico in 1942. His namesake tequila was born in 1987 and entered the U.S. in the mid-1990s. Diageo took full control of Don Julio in 2015. Now the liquor giant is putting more advertising and promotional spending behind the brand. Diageo is also making capital investments to expand Don Julio's production facilities in Mexico. The company last year estimated its investment in Mexico to total $400 million over five years.

While Don Julio does not plan TV ads, it has been aggressive on Facebook, where it runs a two-step campaign, said Alex Tomlin, Diageo's senior VP of tequila. Phase one includes paid ad support of photo-based ads that tout Don Julio's "craft credentials," including cocktails created by trendy mixologists. If a user engages in those ads they are retargeted with video spots telling deeper brands stories. One example shows how the founder began putting the tequila in short, square bottles allowing people sitting across a table to see each other and engage in conversation.

Consumers "are more interested in real stories and genuine stories about people behind brands," Mr. Tomlin said. Late last year the brand released a three-minute video featuring the last-known interview with Mr. Gonzalez. The brand's agencies are Carat for media, VaynerMedia for social and Colangelo for creative.

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Patron, which launched in 1989, breaks its consumers into two groups: The "bros" and the "knows." The bros want style and swagger and order Patron "because it says something about who they are," said Patron Global Chief Marketing Officer Lee Applbaum. But the faster-growing group are the "knows," who don't take marketing at face value and are interested in product quality, he said.

"In our case we are actually just trying to be as transparent as possible. We are trying to counter a misperception that we are style without substance," he said.

That strategy gave birth to a virtual reality video that gives viewers a behind-the-scenes look at how Patron is made at Hacienda Patron in Mexico.

And in a subtle dig at its competitors, Patron has launched a program called "Know Your NOM." The NOM is a unique identifier for every tequila distillery that can be found on tequila bottles. Patron's program allows drinkers to enter the NOM or a brand name on a web site to find out where a particular tequila is made. Patron is the only brand made at its distillery, while the majority of distilleries make multiple brands. "What you find is a $60 dollar tequila made alongside nine dollar tequilas," Mr. Applbaum said.

"I'm not suggesting that multi-brand distilleries make bad tequila, necessarily," he said. "What I'm saying is it would tell you that there are a lot of people that are just creating brands out there to harvest share in a growing category."

Patron's lead creative agency is MullenLowe.

A $230 bottle
But some of the startups are carving niches in the extreme high-end, and finding plenty of demand.

Tears of Llorona Credit: Tears of Llorona/YouTube

One newer brand is Tears of Llorona, which debuted 16 months ago. Partners include Scott Goodby, brother of ad executive Jeff Goodby. Bottles go for $230. The so-called "extra, extra anejo tequila" is made from agaves grown in the high-volcanic slopes of Jalisco, according to the brand website. It is aged for five years in oak barrels that previously held scotch, sherry and brandy. The master tequilero is German Gonzales -- a descendant of former Mexican president General Manuel Gonzalez -- whose family has been making tequila for generations.

Jeff Goodby helped design the bottles and advises on social media marketing, Scott Goodby said. "It's just a very small part time role for him," he said.

He described the brand as a "category buster" that is suitable as an after-dinner drink. It is drawing interest from whisky and bourbon connoisseurs who like their drinks neat. He compared tequila's current era of high-end growth to a similar period in the wine business when consumers became more sophisticated and "started chasing finer and finer wines."

"They are doing the same thing in the tequila business," he said.

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E.J. Schultz

E.J. Schultz is the Chicago Bureau Chief at Ad Age and covers beverage, automotive and sports marketing. He is a former reporter for McClatchy newspapers, including the Fresno Bee, where he covered business and state government and politics, and the Island Packet in South Carolina. He has won awards from the Society of American Business Editors and Writers, the Jesse H. Neal Awards, the Association of Capitol Reporters and Editors, the California Newspaper Publishers Association, the South Carolina Press Association and Investigative Reporters and Editors. A native of Cincinnati, Schultz has an economics degree from Xavier University and a masters in journalism from Northwestern University.